Multiple Employer Plan 401k Options for Small Businesses Explained

A Multiple Employer Plan (MEP) 401k is a type of retirement plan that allows multiple small businesses to pool their resources and offer a 401k plan to their employees. This can be a cost-effective option for small businesses with 10 or fewer employees.

One of the benefits of a MEP 401k is that it can provide better investment options and lower administrative costs compared to a traditional single-employer 401k plan.

For example, a MEP 401k can offer a wider range of investment options, including index funds and target-date funds.

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A Multiple Employer Plan (MEP) is a retirement savings plan where multiple employers participate in a single plan. It's sponsored by one entity, usually a professional employer organization (PEO) or association.

To participate in a MEP, member companies must have a common thread, such as membership to the association or working with a PEO. This is because participating businesses must share a common bond.

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One of the benefits of a MEP is that it can be more cost-effective due to shared resources and outsourcing of administrative duties. This can be a big plus for smaller businesses or those with limited HR resources.

A MEP is also less burdensome in terms of reporting and compliance, as member companies are not required to file an individual 5500 report or undergo an annual plan audit. Additionally, they don't need to acquire ERISA bond protection.

Here are the key characteristics of a MEP:

A MEP or PEP arrangement can help take many operational responsibilities off of the employer's to-do list, enabling them to outsource plan administrative duties and investment management to help reduce their fiduciary risk.

Employers who want to start offering a retirement plan but want to limit the expense, fiduciary liability, and time it takes can benefit from a MEP or PEP arrangement.

A MEP or PEP arrangement is a good fit for employers who want to reduce expenses or outsource fiduciary responsibilities to an expert.

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Businesses of all sizes can benefit from the streamlined plan administration, lower exposure to fiduciary risk, and available tax credits that MEPS and PEPs offer.

By joining a MEP or PEP through Ascensus, you and your employees gain access to additional advantages, including streamlined plan administration and lower exposure to fiduciary risk.

Here are some key benefits of MEPs and PEPs:

Multiple Employer Plans (MEPs) come in various forms, each with its own set of benefits and requirements. A MEP is a retirement savings plan where multiple employers participate in a single plan, sponsored by one entity, typically a professional employer organization (PEO) or association.

A MEP can be a great option for businesses that want to offer a retirement plan but don't want to handle the administrative duties themselves. By outsourcing these responsibilities, employers can reduce their fiduciary risk and lower their expenses.

There are different types of MEPs, including Association Retirement Plans (ARPs) and Pooled Employer Plans (PEPs). ARPs require a "bona fide group or association" with a formal organizational structure, substantial business purpose, and employer member control. On the other hand, PEPs don't require a common thread between participating employers.

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Here are some key differences between MEPs and PEPs:

MEPs and PEPs can provide a turnkey solution for employers, allowing them to outsource plan administrative duties and investment management to reduce their fiduciary risk. By joining a MEP or PEP, businesses can gain access to additional advantages, including streamlined plan administration and available tax credits.

A multiple employer plan (MEP) 401(k) can offer a lot of benefits for small businesses, but it's essential to understand the key differences between MEPs and other retirement plan options.

MEPs allow unrelated employers with sufficient commonality to band together and offer a single retirement plan to their employees. This can be a great way to save on administrative costs and provide a more comprehensive benefits package to employees.

One of the main differences between MEPs and traditional 401(k) plans is eligibility. Traditional 401(k) plans are typically offered by single employers or groups of related employers, whereas MEPs can be offered by unrelated employers.

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A MEP also has a named plan fiduciary, which is the MEP sponsor. This is different from traditional 401(k) plans, which have a plan sponsor as the named fiduciary.

Here's a comparison of MEPs, traditional 401(k) plans, and pooled employer plans (PEPs) in terms of key characteristics:

By understanding the differences between MEPs and other retirement plan options, you can make an informed decision about which plan is best for your business.

The administration of a Multiple Employer Plan (MEP) 401k can be a complex task, but understanding who is responsible for what can help make it more manageable. One of the key differences between MEPs, Profit-Sharing Plans (PEPs), and Simplified Employee Pension (SEPs) is who takes on the time and resources commitments of administering the plan and ensuring compliance.

In a MEP, the plan administrator is responsible for overseeing the entire plan, including ensuring compliance with regulations and reporting to the government. This is a significant responsibility, and it's essential to have a clear understanding of who will be handling these tasks.

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The plan administrator will also be responsible for tasks such as plan design and document support, administration and record keeping, and technical support. These tasks can be time-consuming and require a significant amount of resources, which is why it's crucial to have a clear plan in place.

Here are some of the administrative duties that the plan administrator will be responsible for:

Administration is a crucial aspect of MEPs, PEPs, and SEPs.

Plan administration involves tasks like plan design and document support, administration and record keeping, replacement investment management with block coordination, technical support, regulatory compliance and government reporting, and sponsor and participant communication. These tasks can be time-consuming and require significant resources.

According to Slavic401k, the responsibilities for each administrative duty can vary depending on the plan type.

Here's a breakdown of who's responsible for each administrative duty in each plan type:

In general, plan sponsors take on the time and resources commitments of administering the plan and ensuring compliance, regardless of the plan type.

For many years, PEOs offered retirement plans to worksite employees of their employer clients, but these plans were structured like any other single employer plan.

The IRS issued a Revenue Procedure in the early 2000s, stating that PEOs could only offer plans to worksite employees through a multiple employer plan.

PEOs have offered multiple employer plans to their clients' employees, but the Department of Labor has raised concerns about the structures of these plans.

The DOL requires commonality and control among participating companies to maintain a multiple employer plan, which many PEOs have struggled to meet.

The new DOL regulations clarify the requirements for PEOs to offer multiple employer plans, describing four key requirements that must be satisfied.

A PEO must be a "bona fide" PEO that can act indirectly in the interest of its employer clients to offer a multiple employer plan.

The ability to act on behalf of its employer clients grants the PEO the power to offer a multiple employer plan.

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Multiple employer plans can be complex and may require additional administrative tasks, such as coordinating with other plan sponsors and ensuring compliance with regulations.

You'll need to consider the costs associated with setting up and maintaining a MEP, including any fees charged by the plan administrator.

A MEP can be vulnerable to plan sponsor default or insolvency, which can impact the plan's assets and stability.

The Department of Labor requires MEPs to have a fiduciary responsible for making investment decisions and ensuring the plan's compliance with ERISA.

You may be required to disclose information about the plan to the IRS and other regulatory bodies, which can be time-consuming and may require additional resources.

Multiple employer plans must have a written plan document that outlines the plan's terms, including eligibility requirements, contribution levels, and investment options.

The plan's investment options must be diversified and suitable for the plan's participants, and the plan sponsor must ensure that the investments are properly valued and reported.

The MEP's plan administrator must also maintain accurate records and provide regular reporting to the plan sponsor and participants.

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The future of multiple employer plans (MEPs) is uncertain due to a court decision that struck down the DOL's expansion of the definition of "Employer" in 2019.

The Washington, D.C. District Court ruled against the DOL in a lawsuit brought by the State of New York and others, invalidating the DOL's expansion of the definition of "Employer" to include working owners and associations of companies with geography as their point of commonality.

Any associations that establish MEPs between September 30, 2019, and the date of a final court ruling may face uncertainty, potentially requiring termination or remedial action.

The DOL has consistently stated that the underlying rules for MEPs are the same regardless of the type of benefit being offered, including retirement plans and association health plans.

Unfortunately, the outcome for associations that establish MEPs between September 30, 2019, and the date of a final court ruling remains unclear.

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